What is Needed for Investment in Indonesian Bauxite Sector October, 2014
Bauxite New Commodity for Indonesia China was the only consumer of Indonesian bauxite till 2014 Million tonnes Indonesian bauxite production 45 40 35 30 25 20 15 10 5-2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 China s bauxite suppliers, Mt 80 70 Indonesia Australia India Others 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 8M 2014 55 50 45 40 35 30 25 20 36 35 33 25 Bauxite price dynamics, $/t FOB 2010 2011 2012 2013 2014 Brazil Guinea Indonesia Australia Indonesia has become #3 world bauxite producer in just 10 years. Indonesia was the largest supplier of bauxite to China. Approximately 30% of Chinese aluminium was produced using Indonesian bauxite Value of Indonesian bauxite exports exceeded US$ 1 billion In the H1 2014 world bauxite market reacted to the Indonesian ban with price growth. Weighted average bauxite import price in China went up from 53 $/t in Jan to 61 $/t in June. 37 52 50 45 2
Bauxite New Commodity for Indonesia Situation after export ban introduced January, 2014 On January 12, 2014 Indonesian Government implemented a complete mineral export ban under mining Law #4, 2009. This measure was designed to promote the development of local processing and capacity building in strategic industries such as aluminium sector. Bauxite Export Statistics, 1H 2014 Month, 2014 Bauxite (mln t) July 0 June 0 May 0 April 0 March 0 February 0 January* 2.086* *- at January, 12 Sources: Indonesia Custom Service, Bank of Indonesia (http://www.bi.go.id) Indonesia s only aluminium producer state-owned PT Inalum (formerly Indonesia Asahan Aluminium) is planning to increase production to 300 Mt by 2016 and 500 Mt by 2025. 3
Universal Principles for Mining and Investment Respect the rules and regulations of the host country Conduct business ethically, with sound systems of corporate governance Safeguard the health of workers & communities safety is first priority Manage environmental impact at all stages of the project cycle, including eventual closure Implement risk management strategies based on valid data and sound science data (including operational and investment experience in a jurisdiction). Integrate sustainability principles and reporting into company policies and practices Seek continuous improvement in policy and practices to meet changes in the mine resource, the market and community expectations 4
Major Resource Development Requirements High mineralisation/large-medium resource base Transparent regulatory framework for investors/developers Security of tenure linked to asset life Land access rights Internally consistent laws among the various levels of government. Strong and consistent regulations Stable tax regime that supports investment Finance available only when above criteria are in place 5
Expectations: Host and Developers Host country expects developers will: Recognise and respect the host country aspirations economic, environmental and social Build capacity in local economies skills and infrastructure Adhere to global mining and investment principles Developers expect the host country will provide: Stable regulatory environment and transparent legal framework Risk shared with local partners in joint developments Returns commensurate with asset life and capital invested Taxes, charges, royalties based on fair risk/reward principles 6
Indonesia Aspirations: Capacity Building Host countries want to build capacity in their communities through: A direct share in economic rewards often requiring a local partner in projects Downstream processing to add value to their resources e.g. bauxite refined into alumina Skills training and education extended to highest levels in management Physical infrastructure shared with communities e.g. energy supply, roads The physical environment protected and restored where practicable not just in the project area, also in periphery, e.g. along transport routes mining projects often leave behind community and heritage assets after mine closure. Including : Roads Buildings Power reticulation Physical and financial capital accumulated by local employees and businesses. 7
Communication Key to Investment Communication is key to any investment and it is communication from both sides that often fails the listening test. Too often parties are on transmit and miss the important messages vital to the success of projects Government and industry need to listen 8
For investment to succeed Governments need to: Clearly define their expectations Communicate project benefits Identify benefits to local communities Use project returns in community Industry needs to: Listen to local communities Build trust with government and community Acknowledge concerns Share benefits of project 9